I just went through the 10Q. I'm focused on the reality of amortizing $17.7 million starting on January 1, 2017. Payment is due in full on June 1, 2019. Over the next 29 months the entire $17.7 will need to be paid off. If you straightline the $17.7 MM it works out to over $1.8 million per quarter, a daunting number on top of normal cash burn. The 10-Q discusses liquidity, (I'll ignore the standard going concern warning):
"Pursuant to this securities transaction and related equity issuance, as well as anticipated gross profits and potential outside sources of capital, the Company believes it has sufficient cash to fund operations through Q2 2017."
They are relying on "anticipated gross profits" just to get to Q2 2017! If those IDIS profits don't start rolling in soon it could get ugly in a short time frame. They better start rolling on IDIS or get partnership cash soon. It comes down to the same question we've been asking for years. CAN THEY EXECUTE?
Taking on that debt has to be the single worst financial decision Cytori made during these formative years. Equity dilution is frustrating, but at least it doesn't keep charging you interest and threatening the company's solvency over and over. Mr. Saad's wonderful legacy, we have him to thank.
That said I am very optimistic in a share price increase in the next quarter, therefore allowing the company to raise money in more favorable terms. The wall street crew is not going to let the profit potential of impending Phase III results disappear less than three months before their release (whether they want to buy or sell the results that is another story). I am optimistic that the company will find a way to avoid the debt default bullet once more, even if no large partnership is achieved before the results.
I am optimistic that the company will find a way to avoid the debt default bullet once more, even if no large partnership is achieved before the results.
The question is HOW? Does anyone really believe they will get substantial IDIS revenues flowing in time before they need to sell more shares? At this point any forced partnership will probably be at terms so onerous that most of the upside will be given away after almost $400,000,000 of R/E deficit since inception. But you are correct, putting on debt on a company like Cytori was crazy. I asked Saad about this at a lunch in NYC a few years ago. GE Healthcare approached them about the loan. They made the mistake of saying yes but at that time they thought they had a quick path to revenues. Boy were they wrong as were all of us.
I do not have faith in substantial IDIS revenues. I know that DOV and others were counting on these, but with the lack of execution from the company on all non core revenue opportunities over the last many years I do not have faith that the IDIS deal is going to be our savior. I certainly am encouraged and hopeful that they will get some revenue from it, I just don't think that it will be enough to avoid the urgent need for more cash in the first half of 2017.
That said, I looked at the 10q myself and I am seeing that the due date for the unpaid principal is June 1st 2019. Principal and interest payments do commence on January 1st 2017, but the full balance is not due until 2.5 years later. Correct me if I am wrong, but here is the direct text from the 10q:
On May 29, 2015, we entered into the Loan and Security Agreement, dated May 29, 2015 (“Loan Agreement”), with Oxford Finance LLC (“Oxford”), pursuant to which it funded an aggregate principal amount of $17.7 million (“Term Loan”), subject to the terms and conditions set forth in the Loan Agreement. The Term Loan accrues interest at a floating rate of at least 8.95% per annum, comprised of three-month LIBOR rate with a floor of 1.00% plus 7.95%. Pursuant to the Loan Agreement, we were previously required to make interest only payments through June 1, 2016 and thereafter we were required to make payments of principal and accrued interest in equal monthly installments sufficient to amortize the Term loan through June 1, 2019, the maturity date. On February 23, 2016, we received an acknowledgement and agreement from Oxford related to the positive data on our U.S. ACT-OA clinical trial. As a result, pursuant to the Loan Agreement, the period for which we are required to make interest-only payments was extended from July 1, 2016 to January 1, 2017. All unpaid principal and interest with respect to the Term Loan is due and payable in full on June 1, 2019. At maturity of the Term Loan, or earlier repayment in full following voluntary prepayment or upon acceleration, we are required to make a final payment in an aggregate amount equal to approximately $1.1 million. "
My opinion is that fund raising will commence in Q1 from the ATM and with another equity round, along with the possibility of some small partnerships and any IDIS revenue. Through all of those sources I believe we will be fine through the arrival of the STAR results.
Just re-read your post and realized I misread it. You did state the date or June 2019 for full repayment, my apologies.
I still think that with the fully amortized payments the company can raise enough to sustain in the short term, until the START results and a meaningful partnership after those. Also I would not be surprised if they are able to negotiate some adjustment of their loan terms again, although that might be somewhat less likely given they were already adjusted once.
You are missing the point - we cannot as shareholders afford another dilutive financing in the first half of 2017 - this stock is already down to nothing (on a pre-split basis, it is less than .12 - many are in at $2-3 or more) - CYTX needs to do a cash partnership deal before the end of Q-1 - otherwise, it is toast imo! or
Just to be clear, you do realize that in just 45 days, in addition its normal cash burn, Cytori will start paying an additonal $1,800,000+ per quarter for the next 10 quarters to pay off the debt? I agree that there is no White Knight out there that is going to come in and partner on anything without taking so much of the economics that existing shareholders would be screwed anyway. The hole has been dug too deep so that issuing shares at a market cap of less than $30,000,000 is likely the best case scenario, unfortunately. Yet the CEO's salary has never been cut even as the size of the company has shrunk dramatically.
I do understand that, although I believe the correct expense should be more like $663,155 a month starting on Jan 1st. If we take the outstanding loan balance of $17,767,000, 2.5 year amortization at an 8.95% rate, I calculate $663k a month, or just under 2 million a quarter.
I am just as frustrated as the next shareholder, trust me. This management and the previous regime have squandered hundreds of millions of dollars over 15 years, and never gotten us meaningful results or revenue opportunities. That said I do give Mark and Tiago credit for what they have done over the last 18-24 months, and I repeat that I am optimistic about the short term cash flow issue working out, and at least giving us a chance to see the Scleroderma results.
I see the following possibilities to address the short term cash issue:
1. Partnership (unlikely but possible).
2. Restructuring loan, delaying principal payments.
3. IDIS Revenues
4. Larger Japanese Revenues
4. Share price appreciation and ATM
5. Another equity (rape) financing.
Not saying I'm happy about the options, just that I do think the company still has options to get us to mid 2017. I'll hop back in the "queue" now so that I'm not the only one commenting. Good luck to all!
Irrational, your number 1 option is more possible than you think, while your number 5 option is just unacceptable both from the standpoint of CYTX management and CYTX shareholders. Hedrick and Tiago both know that it would be far better to do a less than perfect partnership than another dilutive and destructive financing! JMHO.
#2 is probably better than another Equity Rape financing. To put things in perspective, assuming a $44,000 gross margin on Idis Scleroderma procedures, the $17,700,000 principal equates to the gross profit of about 400 procedures. BTW, I think that the lenders were very generous in extending the maturity based on the OA data that were unimpressive and have not produced any interest from partners.
The ATM is somewhat unrealistic at these level of volume. On most days volume is less than 75,000 share. Without a substantial increase in volume, use of the ATM will drag the stock towards $1.00 again. It would take 3,333,333 shares at $1.50 just to raise $5,000,000 before any discounts for the ATM provider.
I agree with you that the ATM is not reasonable at these prices or volumes. That is why I mentioned that the ATM possibility is contingent on a share price increase (as one would assume that would bring increased volume with it):
4. Share price appreciation and ATM
Given our severely depressed market cap and significant 2017 milestones approaching, it would not surprise me to see a short term spike in the stock price at some point over the next 3-4 months, similar to what we saw in spring of 2015. Just hope the company is standing by ready to utilize the ATM if we are so fortunate. Obviously the ATM alone will not be enough to fund operations, but if utilized correctly perhaps it could limit the extend of the financing that is bound to happen in Q1 if no partnership comes to fruition.